Hungary’s economy entered technical recession in late 2022

Hungary’s economic performance stumbled at the end of last year, confirming analyst views that the economy was in a technical recession from the second half of last year. The government expects the economy to expand in 2023.

Hungary’s statistical office reported a contraction for a second consecutive quarter this week. Gross domestic product (GDP) fell 0.4% quarter-on-quarter in the fourth quarter of 2022, following a 0.7% drop in the previous three months. On an annual basis, the economy grew by a mere 0.4% compared to the 4.0% growth posted in the third quarter. The slowdown comes on the back of soaring inflation, which have caused a decline in household consumption.

A tale of two halves
Hungary’s economy expanded by 4.6% year-on-year in 2022, according to preliminary data. “At a first glance, last year’s growth might seem robust, signaling a healthy economy, but the reality is that 2022 was a tale of two halves,” said economists at ING Bank in Budapest in a research note.
The economy started last year on the right foot, boosted by a rebound in activity after the pandemic and coupled with extensive fiscal stimulus ahead of April’s general elections, according to the note. Nevertheless, the second half of 2022 paints an entirely different picture, with fiscal austerity measures being in place on top of the energy and cost of living crises. Skyrocketing energy costs fed through the entire economy paralyzing activity in a range of sub-sectors, which took a toll on third- and fourth-quarter GDP. As both households and corporates had to cope with crippling energy prices, domestic economic activity markedly slowed down, hence the negative quarterly readings in the second half of 2022 and a slowdown close to stagnation in the annual growth data. “Currently, we see a realistic chance that GDP will shrink on a quarterly basis in the first quarter of 2023 on domestic demand, after which the economic recovery and catch-up to the pre-crisis GDP level can begin,” the analysts said. ING expects the Hungarian economy to expand by 0.7% in 2023.
More optimistic
The government is more optimistic when it comes to this year’s GDP outlook. Despite mounting economic challenges, the country will avoid recession in 2023 and the government targets GDP growth of 1.5% for the whole year, Economic Development Minister Márton Nagy said at a business event this week. The minister stressed that 2023 is set to bring a number of economic challenges, including geopolitical tensions, the energy crisis in Europe, deteriorating competitiveness, and extreme weather. Against this backdrop, the government needs to tackle inflation and the twin deficits. This is only possible if the economic policy remains innovative, the minister said. The Cabinet expects inflation to fall into single-digit territory by the end of the year while the country’s deficit-to-GDP ratio could be reduced to close to 70%, he said.
“Hungary’s economic growth will continue to be led by export and investment in the future as well, requiring a new financing structure and new energy, industrial and employment policies,” Márton Nagy stressed. Economic policy will focus on key sectors such as the automotive, battery, health, pharmaceutical, energy, food, research and development, higher education, transport, telecommunications, tourism, banking, insurance, and defense industries. The aim must be to bring more and better investment to Hungary, he said, adding that the country must remain attractive and continuously improve its competitiveness by reducing bureaucratic burdens. Investments could reach 20,000 billion forints (EUR 51.3 billion) in 2023, the Minister highlighted.